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Chapter 11Chapter 11
Organizational Structure
and Controls
Organizational Structure
and Controls
Michael A. HittR. Duane Ireland
Robert E. Hoskisson
Michael A. HittR. Duane Ireland
Robert E. Hoskisson
2000 South-Western College Publishing2000 South-Western College Publishing
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Structure TypesStructure Types
All organizations require some form of organizationalAll organizations require some form of organizationalstructure to implement and manage their strategiesstructure to implement and manage their strategies
Firms frequently alter their structure as they grow inFirms frequently alter their structure as they grow in
size and complexitysize and complexity
Three basic structure types:Three basic structure types:
Functional StructureFunctional Structure
Multi-divisional Structure (M-form)Multi-divisional Structure (M-form)
Simple StructureSimple Structure
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Strategy & StructureStrategy & Structure
Growth PatternsGrowth PatternsSales Growth CoordinationSales Growth Coordination
and Control Problemsand Control Problems
Sales Growth CoordinationSales Growth Coordination
and Control Problemsand Control Problems
Efficient implementationEfficient implementationof formulated strategyof formulated strategy
Efficient implementationEfficient implementationof formulated strategyof formulated strategy
MultidivisionalMultidivisional
StructureStructure
MultidivisionalMultidivisional
StructureStructure
Efficient implementationEfficient implementationof formulated strategyof formulated strategy
Efficient implementationEfficient implementationof formulated strategyof formulated strategy
Sales Growth CoordinationSales Growth Coordinationand Control Problemsand Control Problems
Sales Growth CoordinationSales Growth Coordinationand Control Problemsand Control Problems
FunctionalFunctionalStructureStructure
FunctionalFunctionalStructureStructure
SimpleSimpleStructureStructure
SimpleSimple
StructureStructure
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Simple StructureSimple Structure
Owner / ManagerOwner / Manager
Owner/Manager makes all major decisionsOwner/Manager makes all major decisions
directly and monitors all activitiesdirectly and monitors all activities
Difficult to maintain this structure asDifficult to maintain this structure asthe firm grows in size and complexitythe firm grows in size and complexity
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* Production* Production
* Finance* Finance
* Engineering* Engineering
* Accounting* Accounting
* Sales & Marketing* Sales & Marketing
* Human Resources* Human Resources
Functional StructureFunctional Structure
First stage beyond a Simple StructureFirst stage beyond a Simple Structure
Appropriate for single or dominant-business firmsAppropriate for single or dominant-business firms
Allows specialization of tasksAllows specialization of tasks
Overcomes information processing limits ofOvercomes information processing limits ofsingle owner/managersingle owner/manager
Functional department heads report to ChiefFunctional department heads report to ChiefExecutive Officer who integrates decisions andExecutive Officer who integrates decisions andactions from a company-wide point of viewactions from a company-wide point of view
Risks conflicts between myopic function managersRisks conflicts between myopic function managers
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ProductionProductionFinanceFinance EngineeringEngineering AccountingAccounting
Sales &Sales &
MarketingMarketing
HumanHuman
ResourcesResources
Functional StructureFunctional Structure
Chief Executive OfficerChief Executive Officer
CorporateCorporate
FinanceFinance
CorporateCorporate
R&DR&D
CorporateCorporate
MarketingMarketing
CorporateCorporate
HumanHuman
ResourcesResources
StrategicStrategic
PlanningPlanning
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Functional Structure forFunctional Structure for
Cost LeadershipCost Leadership StrategyStrategyFunctional Structure forFunctional Structure for
Cost LeadershipCost Leadership StrategyStrategy
Office of the PresidentOffice of the President
CentralizedCentralized
StaffStaff
Operations is main functionOperations is main function
Process engineering isProcess engineering is
emphasized rather than newemphasized rather than newproduct R&Dproduct R&D
Formalized procedures allowFormalized procedures allowfor low-cost culturefor low-cost culture
Structure is mechanical; jobStructure is mechanical; jobroles are highly structuredroles are highly structured
Relatively largeRelatively large
centralized staffcentralized staffcoordinatescoordinatesfunctionsfunctions
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MarketingMarketingNewNew
ProductProduct
R&DR&D
OperationsOperationsHumanHuman
ResourcesResourcesFinanceFinance
R&DR&D MarketingMarketing
Functional Structure forFunctional Structure for
DifferentiationDifferentiation StrategyStrategyFunctional Structure forFunctional Structure for
DifferentiationDifferentiation StrategyStrategy
President andPresident andLimited StaffLimited Staff
Marketing is the main function for tracking new product ideasMarketing is the main function for tracking new product ideasNew product R&D is emphasizedNew product R&D is emphasized Most functions are decentralizedMost functions are decentralized Formalization is limited to foster change and promote new ideasFormalization is limited to foster change and promote new ideas Overall structure is organic; job roles are less structuredOverall structure is organic; job roles are less structured
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Multi-Divisional StructureMulti-Divisional Structure
Each division is operated as a separate businessEach division is operated as a separate business
Appropriate for related-diversified businessesAppropriate for related-diversified businesses
Key task of corporate managers is exploiting synergiesKey task of corporate managers is exploiting synergies
among divisionsamong divisionsManagers use a combination of strategic controls andManagers use a combination of strategic controls andfinancial controlsfinancial controls
Managers try to strike a balance between:Managers try to strike a balance between:Competing among divisions for scarce capital resourcesCompeting among divisions for scarce capital resources
Creating opportunities for cooperation to develop synergiesCreating opportunities for cooperation to develop synergies
The goal is to maximize overall firm performanceThe goal is to maximize overall firm performance
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Multi-Divisional StructureMulti-Divisional Structure
Balance on these dimensions may change over timeBalance on these dimensions may change over time
The decision-making of managers in a Multi-The decision-making of managers in a Multi-Divisional structure may be:Divisional structure may be:
Centralized or DecentralizedCentralized or Decentralized
Bureaucratic or Non-bureaucraticBureaucratic or Non-bureaucratic
Changes in strategyChanges in strategy
Degree of diversificationDegree of diversification
Geographic scopeGeographic scope
Nature of competitionNature of competition
Structure will evolve over time with:Structure will evolve over time with:
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DivisionDivision DivisionDivision DivisionDivision DivisionDivision
ProductionProductionFinanceFinance EngineeringEngineering AccountingAccounting
Sales &Sales &
MarketingMarketing
HumanHuman
ResourcesResources
Multi-Divisional StructureMulti-Divisional Structure
Chief Executive OfficerChief Executive Officer
CorporateCorporate
FinanceFinance
CorporateCorporate
R&DR&D
CorporateCorporate
MarketingMarketing
StrategicStrategic
PlanningPlanning
CorporateCorporate
HumanHuman
ResourcesResources
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PresidentPresidentPresidentPresident
StrategicStrategic
BusinessBusiness
Unit AUnit A
SBU FormSBU FormRelated-Linked StrategyRelated-Linked Strategy
CorporateCorporate
FinanceFinance
CorporateCorporate
R&DR&D
CorporateCorporate
MarketingMarketing
StrategicStrategic
PlanningPlanning
CorporateCorporate
HumanHuman
ResourcesResources
DivisionDivisionDivisionDivisionDivisionDivision
StrategicStrategic
BusinessBusiness
Unit CUnit C
DivisionDivisionDivisionDivisionDivisionDivision
StrategicStrategic
BusinessBusiness
Unit BUnit B
StrategicStrategic
BusinessBusiness
Unit DUnit D
Structural integration exists among divisions within SBUs, but not across SBUsStructural integration exists among divisions within SBUs, but not across SBUs Each SBU may have its own budget for staff to foster integrationEach SBU may have its own budget for staff to foster integration
Corporate headquarters staff serve as consultants to SBUs and divisionsCorporate headquarters staff serve as consultants to SBUs and divisions
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Competitive FormCompetitive FormUnrelated /Holding Company StrategyUnrelated /Holding Company Strategy
PresidentPresidentPresidentPresident
LegalLegal
AffairsAffairs
FinanceFinance
Corporate headquarters has a small staffCorporate headquarters has a small staff Finance and auditing are the most prominent functions in the headquartersFinance and auditing are the most prominent functions in the headquarters Divisions are independent and separate for financial evolution purposesDivisions are independent and separate for financial evolution purposes
Divisions retain strategic control, but cash is managed by the corporate officeDivisions retain strategic control, but cash is managed by the corporate office
Divisions compete for corporate resourcesDivisions compete for corporate resources
AuditingAuditing
DivisionDivisionDivisionDivisionDivisionDivisionDivisionDivision DivisionDivision
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Cost LeadershipCost Leadership
DecentralizationDecentralizationDifferentiationDifferentiation
CentralizationCentralization
Multi-Divisional StructureMulti-Divisional Structure
The choice between centralization and decentralizationThe choice between centralization and decentralization
is frequently based on the business-level strategyis frequently based on the business-level strategyimplemented in each divisionimplemented in each division
Complex Multi-Divisional structure firms may beComplex Multi-Divisional structure firms may besimultaneously centralized and decentralized ,simultaneously centralized and decentralized ,depending upon the various business-level strategiesdepending upon the various business-level strategies
employed throughout the firms individual businessesemployed throughout the firms individual businesses
Multi-Divisional structure firms use a combination of:Multi-Divisional structure firms use a combination of:
Financial ControlsFinancial Controls
Strategic ControlsStrategic Controls
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A Structural evolution based onA Structural evolution based on GeographicGeographic lines usuallylines usually
implies aimplies a Multi-DomesticMulti-Domestic International StrategyInternational Strategy
Evolution of Multi-Divisional StructureEvolution of Multi-Divisional Structure
NorthNorthAmericaAmerica
AustraliaAustraliaEuropeEurope AsiaAsia LatinLatinAmericaAmerica
AfricaAfrica
Product AProduct A Product BProduct B Product CProduct C Product DProduct D
Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer
Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)
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Implementation of aImplementation of aMultidomesticMultidomestic StrategyStrategy
WorldwideWorldwide
GeographicGeographicAreaArea
StructureStructure
MultinationalMultinational
HeadquartersHeadquarters
MultinationalMultinational
HeadquartersHeadquarters
AsiaAsiaAsiaAsiaUnitedUnited
StatesStates
UnitedUnited
StatesStates
LatinLatin
AmericaAmerica
LatinLatin
AmericaAmericaEuropeEuropeEuropeEurope
AustraliaAustraliaAustraliaAustraliaMiddleMiddleEast/East/
AfricaAfrica
MiddleMiddleEast/East/
AfricaAfrica
Green circles indicate decentralization of operationsGreen circles indicate decentralization of operations Emphasis is on differentiation by local demand to fit a cultureEmphasis is on differentiation by local demand to fit a culture Corporate headquarters coordinates financial resources amongCorporate headquarters coordinates financial resources among
independent subsidiariesindependent subsidiaries The or anization is like a decentralized federationThe or anization is like a decentralized federation
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Product AProduct A Product BProduct B Product CProduct C Product DProduct D
A Structural evolution based onA Structural evolution based onProductProductlineslines
usually implies ausually implies a GlobalGlobal International StrategyInternational Strategy
Evolution of Multi-Divisional StructureEvolution of Multi-Divisional Structure
Chief Executive OfficerChief Executive OfficerChief Executive OfficerChief Executive Officer
Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)Corporate Office (Staff)
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Implementation of aImplementation of a GlobalGlobalStrategyStrategy
WorldwideWorldwide
ProductProductDivisionalDivisional
StructureStructure
Green circle indicates centralization to coordinate informationGreen circle indicates centralization to coordinate informationflow among worldwide productsflow among worldwide products
Headquarters uses many intercoordination devices to facilitateHeadquarters uses many intercoordination devices to facilitateglobal economies of scale and scopeglobal economies of scale and scope
Headquarters also allocates financial resources cooperativelyHeadquarters also allocates financial resources cooperatively The organization is like a centralized federationThe organization is like a centralized federation
MultinationalMultinational
HeadquartersHeadquarters
MultinationalMultinational
HeadquartersHeadquarters
WorldwideWorldwide
ProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwide
ProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
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A Strategic NetworkA Strategic Network
StrategicStrategic
CenterCenterFirmFirm
StrategicStrategic
CenterCenterFirmFirm
Network FirmsNetwork Firms
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StrategicStrategicCenterCenter
FirmFirm
StrategicStrategicCenterCenter
FirmFirm
Strategic Center Firms Critical FunctionsStrategic Center Firms Critical Functions
Strategic OutsourcingStrategic Outsourcing
Capability DevelopmentCapability Development
Technology SharingTechnology Sharing
Building Linkages toBuilding Linkages to
Facilitate LearningFacilitate Learning
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StrategicStrategicCenterCenterFirmFirm
StrategicStrategic
CenterCenterFirmFirm
Strategic OutsourcingStrategic Outsourcing
Center firm coordinates outsourcing among partners,Center firm coordinates outsourcing among partners,
initiates actions and coordinates problem solvinginitiates actions and coordinates problem solving
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StrategicStrategicCenterCenter
FirmFirm
StrategicStrategicCenterCenter
FirmFirm
Strategic Center Firms Critical FunctionsStrategic Center Firms Critical Functions
Strategic OutsourcingStrategic Outsourcing
Capability DevelopmentCapability Development
Technology SharingTechnology Sharing
Building Linkages toBuilding Linkages to
Facilitate LearningFacilitate Learning
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Strategic center firm manages the development and sharingStrategic center firm manages the development and sharing
technology-based ideas among network partnerstechnology-based ideas among network partners
Capability and TechnologyCapability and Technology
StrategicStrategicCenterCenterFirmFirm
StrategicStrategicCenterCenterFirmFirm
Center firm attempts to develop each partners coreCenter firm attempts to develop each partners corecompetencies and provides incentives for network firms tocompetencies and provides incentives for network firms toshare their capabilities and competencies with partnersshare their capabilities and competencies with partners
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StrategicStrategic
CenterCenter
FirmFirm
StrategicStrategic
CenterCenter
FirmFirm
Strategic Center Firms Critical FunctionsStrategic Center Firms Critical Functions
Strategic OutsourcingStrategic Outsourcing
Capability DevelopmentCapability Development
Technology SharingTechnology Sharing
Building Linkages toBuilding Linkages to
Facilitate LearningFacilitate Learning
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StrategicStrategicCenterCenterFirmFirm
StrategicStrategicCenterCenterFirmFirm
Building Linkages to Facilitate LearningBuilding Linkages to Facilitate Learning
Strategic center firm emphasizes to partners the need to buildStrategic center firm emphasizes to partners the need to buildlinkages between value chains and networks of value chains.linkages between value chains and networks of value chains.
The strategic network seeks to develop a competitiveThe strategic network seeks to develop a competitive
advantage in primary or support activitiesadvantage in primary or support activities
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